-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FtQ+UDGBqt3HW7i3G/UCA8x6bC9m26wJwPAcFkQwcdiiLNCfvu/Eu0MLz5P/VMyA CvTJtPN4k96VutUyEmZUCA== 0000892251-98-000270.txt : 19980831 0000892251-98-000270.hdr.sgml : 19980831 ACCESSION NUMBER: 0000892251-98-000270 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980828 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINTAS CORP CENTRAL INDEX KEY: 0000723254 STANDARD INDUSTRIAL CLASSIFICATION: MEN'S & BOYS' FURNISHINGS, WORK CLOTHING, AND ALLIED GARMENTS [2320] IRS NUMBER: 311188630 STATE OF INCORPORATION: WA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11399 FILM NUMBER: 98700326 BUSINESS ADDRESS: STREET 1: 6800 CINTAS BLVD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 BUSINESS PHONE: 5134591200 MAIL ADDRESS: STREET 1: 6800 CINTAS BOULEVARD STREET 2: P O BOX 625737 CITY: CINCINNATI STATE: OH ZIP: 45262 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES X EXCHANGE ACT OF 1934 For the Fiscal Year Ended May 31, 1998 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-11399 CINTAS CORPORATION (Exact name of registrant as specified in its charter) Incorporated under IRS Employer ID the Laws of Washington No. 31-1188630 (State or other juris- diction of incorporation 6800 Cintas Boulevard or organization) P.O. Box 625737 Cincinnati, Ohio 45262-5737 Phone: (513) 459-1200 (Address of principal executive offices) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES NO X Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X] The aggregate market value of Common Stock held by nonaffiliates is $4,922,786,788 based on a closing price of $46.94 on August 21, 1998. As of August 21, 1998, 104,879,612 shares of no par value Common Stock were issued and outstanding. Documents Incorporated by Reference Portions of the Registrant's Annual Report to Shareholders for 1998 furnished to the Commission pursuant to Rule 14a-3(b) and portions of the Registrant's Proxy Statement to be filed with the Commission for its 1998 annual meeting are incorporated by reference in Parts II and III as specified. CINTAS CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K Page Part I Item 1. - Business. 3 Item 2. - Properties. 4 Item 3. - Legal Proceedings. 7 Item 4. - Submission of Matters to a Vote of Security Holders. 8 Part II Item 5. - Market for Registrant's Common Equity and Related 8 Stockholder Matters. Item 6. - Selected Financial Data. 8 Item 7. - Management's Discussion and Analysis of Financial 8 Condition and Results of Operations. Item 7A. - Quantitative and Qualitative Disclosure About Market Risk. 8 Item 8. - Financial Statements and Supplementary Data. 8 Item 9. - Changes in and Disagreements with Accountants on 9 Accounting and Financial Disclosure. Part III Item 10. - Directors and Executive Officers of the Registrant. 9 Item 11. - Executive Compensation. 9 Item 12. - Security Ownership of Certain Beneficial Owners and 9 Management. Item 13. - Certain Relationships and Related Transactions. 9 Part IV Item 14. - Exhibits, Financial Statement Schedules and 9 Reports on Form 8-K. PART I ITEM 1. BUSINESS The Company began business in 1929 as an Ohio Corporation and changed its state of incorporation to Washington in 1986. Cintas provides a highly specialized service to businesses of all types - from small service and manufacturing companies to major corporations that employ thousands of people. The Company designs, manufactures and implements corporate identity uniform programs throughout the United States. The rental markets served by the Company are highly fragmented and competition for this business varies at each of the Company's locations. There are other companies in the uniform rental business which have financial resources comparable to those of the Company, although much of the competition consists of smaller local and regional firms. In certain instances, local competitors may also have financial resources comparable to those deployed by the Company in a particular market. The Company believes that the primary competitive factors that affect its operations are quality, service, design and price, in that order. The service provided to the rental markets served by the Company principally consists of the rental and cleaning of uniforms as well as providing on-going uniform upgrades to each customer. The Company also offers ancillary products which includes the rental or sale of walk-off mats, fender covers, towels, mops, linen products and first aid products and services. Due to its diverse customer base and average account size, the loss of one account would not have a significant financial impact on the Company. In its sale of customized uniforms, Cintas and its subsidiary Uniforms To You, compete on a national basis with other uniform suppliers and manufacturers, some of which have financial resources comparable to the Company's. The Company operates seven wholly owned manufacturing facilities which provide for a substantial amount of its standard uniform needs. Additional products are purchased from several outside suppliers. Because of the Company's ability to manufacture much of its own uniform needs, the loss of one vendor would not have a significant effect on the Company. In regard to the availability of fabric for the manufacturing process, the Company purchases fabric from several suppliers. The Company is not aware of any circumstances which would hinder its ability to obtain these materials. The Company does not anticipate any material capital expenditures for environmental controls that would have a material effect on its financial condition. The Company is not aware of any material non-compliance with environmental laws. At May 31, 1998, the Company employed 16,957 employees of which 770 were represented by labor unions. The Company considers its relationship with its employees to be satisfactory. The table sets forth the revenues derived from each service provided by Cintas. Year Ended May 31 1998 1997 1996 (in thousands) Net Rentals $ 872,739 $739,207 $648,616 Other Service Revenue 325,568 256,000 227,217 -------- -------- ------- $1,198,307 $995,207 $875,833 ========== ======== ======== ITEM 2. PROPERTIES The Company occupies 193 facilities located in 154 cities. The corporate offices provide centrally located administrative functions including accounting, finance, marketing and data processing. The Company operates processing plants that house administrative, sales and service personnel and the necessary equipment involved in the cleaning of uniforms and bulk items. Branch operations provide administrative, sales and service functions. Cintas operates four distribution facilities and has seven manufacturing plants. The Company also operates facilities which distribute first aid products. The Company considers the facilities it operates to be adequate for their intended use. The Company owns or leases 3,815 vehicles. The following chart provides additional information concerning Cintas' facilities: Location Type of Facility Cincinnati, Ohio Corporate Offices, National Account Division, Distribution Center Abbotsford, Vancouver (Canada) Processing Plant Akron, Ohio Processing Plant Alexandria, Louisiana Branch* Allentown, Pennsylvania Branch* Amarillo, Texas Branch* Angola, Indiana Branch Asheville, North Carolina Branch* Ashland, Kentucky Processing Plant Atlanta, Georgia Processing Plant Augusta, Georgia Processing Plant Austin, Texas Processing Plant Baltimore, Maryland Processing Plant Baltimore, Maryland First Aid Facility Barrie, Ontario (Canada) Processing Plant Baton Rouge (South), Louisiana Processing Plant Baton Rouge (North), Louisiana Processing Plant Battlecreek, Michigan Processing Plant Beaumont, Texas Processing Plant Birmingham, Alabama Branch* Bloomington, Indiana Branch* Boston, Massachusetts Processing Plant Branford, Connecticut Processing Plant Brownsville, Texas Branch* Buffalo, New York Processing Plant Burton, Michigan Branch* Charleston, South Carolina Branch* Charlotte, North Carolina First Aid Facility* Charlotte, North Carolina Processing Plant Chattanooga, Tennessee Branch* Chicago (South), Illinois Processing Plant Chicago (North), Illinois Processing Plant Chicago, Illinois First Aid Chicago, Illinois Distribution Center Chicago, Illinois Manufacturing Facility Cincinnati, Ohio Branch* Cincinnati, Ohio Processing Plant Clay City, Kentucky Manufacturing Facility* Cleveland (West), Ohio Processing Plant Cleveland (East), Ohio Processing Plant Cleveland, Ohio First Aid Facility* Colorado Springs, Colorado Branch* Columbia, South Carolina Processing Plant* Columbus, Ohio Processing Plant Columbus, Ohio Branch* Corpus Christi, Texas Processing Plant Dallas, Texas Processing Plant Dallas, Texas First Aid Facility* Dallas, Texas First Aid Facility Dayton, Ohio Processing Plant Dayton, Ohio Processing Plant Decatur, Georgia Processing Plant Denver, Colorado Processing Plant Denver, Colorado First Aid Facility* Detroit, Michigan First Aid Facility* Detroit, Michigan Processing Plant Etobicoke, Ontario (Canada) Processing Plant Eugene, Oregon Branch* Evansville, Indiana Processing Plant* Evansville, Indiana Branch* Fairfield, California First Aid Facility* Flint, Michigan Branch* Fort Meyers, Florida Branch* Fort Smith, Arkansas Processing Plant* Fort Wayne, Indiana Branch* Fort Wayne, Indiana Processing Plant Gaylord, Michigan Processing Plant Grand Rapids, Michigan Branch* Grand Rapids, Michigan Branch* Greenville, South Carolina Processing Plant Greenville, South Carolina Processing Plant Greenwood, Mississippi Branch* Griffith, Indiana Branch* Gulfport, Mississippi Branch* Hammond, Louisiana Branch Harrison, Arkansas Branch* Hazard, Kentucky Manufacturing Facility* Hoisington, Kansas Processing Plant* Houston, Texas First Aid Facility* Houston, Texas Processing Plant Huntsville, Alabama Branch* Indianapolis, Indiana Processing Plant Indianapolis, Indiana Processing Plant Indianapolis, Indiana Processing Plant Jackson, Mississippi Branch* Jacksonville, Florida Branch* Joplin, Missouri Branch* Kansas City, Kansas Processing Plant Kansas City, Kansas First Aid Facility Kansas City, Kansas First Aid Facility Knoxville, Tennessee Branch* Knoxville, Tennessee First Aid Facility* Kokomo, Indiana Processing Plant* Lafayette, Louisiana Branch Lafayette, Indiana Processing Plant Lake Charles, Louisiana Processing Plant Lake Station, Indiana Branch* Laredo, Texas Branch* Las Vegas, Nevada Processing Plant Lexington, Kentucky Processing Plant Lindsay, Ontario (Canada) Processing Plant Little Rock, Arkansas Processing Plant London, Ontario (Canada) Branch* Long Island, New York Processing Plant Los Angeles, California Processing Plant Louisville, Kentucky Processing Plant Louisville, Kentucky Processing Plant Louisville, Kentucky First Aid Facility* Lufkin, Texas Branch Madison, Wisconsin Processing Plant Madison, Wisconsin Direct Sales Memphis, Tennessee Processing Plant Mexico City, Mexico Manufacturing Facility* Miami, Florida Processing Plant Midland, Michigan Processing Plant Milwaukee, Wisconsin Branch* Milwaukee, Wisconsin First Aid Facility* Minneapolis, Minnesota First Aid Facility* Minneapolis, Minnesota Processing Plant* Mobile, Alabama Branch* Montgomery, Alabama Distribution Center* Montgomery, Alabama Branch* Mt. Vernon, Kentucky Manufacturing Facility* Napanee, Ontario (Canada) Processing Plant Nashville, Tennessee Processing Plant Nashville, Tennessee Branch* Natchez, Mississippi Branch* Newburgh, New York Processing Plant New Orleans, Louisiana Processing Plant Oklahoma City, Oklahoma Processing Plant Ontario, California Processing Plant Orange, California Branch* Orlando, Florida Processing Plant Owingsville, Kentucky Manufacturing Facility Pensacola, Florida Branch* Philadelphia, Pennsylvania Processing Plant Phoenix, Arizona Processing Plant Phoenix, Arizona First Aid Facility* Piscataway, New Jersey Processing Plant Pittsburgh, Pennsylvania Processing Plant Portal, Georgia Manufacturing Facility Portland, Maine Branch Portland, Oregon Processing Plant Portland, Oregon First Aid Facility* Raleigh-Durham, North Carolina Branch* Rancho Santa Margarita, California Direct Sales Office Rapid City, South Dakota First Aid Facility* Reno, Nevada Distribution Center* Richmond, Indiana Processing Plant* Richmond, Virginia Processing Plant Sacramento, California Branch* Savannah, Georgia Branch* Salt Lake City, Utah Processing Plant* San Angelo, Texas Branch* San Antonio, Texas Processing Plant San Diego, California First Aid Facility * San Diego, California Processing Plant Sandusky, Ohio Branch* San Fernando, California Branch* San Francisco(West), California Branch* San Francisco (East), California Processing Plant* San Jose, California Processing Plant San Leandro, California First Aid Facility* Seattle, Washington Processing Plant Scranton, Pennsylvania First Aid Facility* Shreveport, Louisiana Processing Plant South Bend, Indiana Processing Plant Springdale, Arkansas Processing Plant Springfield, Missouri Processing Plant St. Louis, Missouri First Aid Facility* St. Louis, Missouri Processing Plant* Tacoma, Washington Branch* Tampa, Florida Processing Plant Taunton, Massachusetts Branch* Terrre Haute, Indiana Processing Plant Thibodaux, Louisiana Processing Plant Toledo, Ohio Branch* Toronto, Ontario (Canada) Processing Plant Tulsa, Oklahoma Processing Plant Tuscaloosa, Alabama Processing Plant Tyler, Texas Branch* Victoria, Texas Processing Plant Vidalia, Georgia Processing Plant Virginia Beach, Virginia Branch* Warsaw, Indiana Branch West Chester, New York Branch* Washington, D.C. Processing Plant Westland, Michigan Processing Plant West Palm Beach, Florida Branch* West Valley City, Utah First Aid Facility* Wichita, Kansas Branch* Winston-Salem, North Carolina Processing Plant Youngstown, Ohio Branch* *Leased for various terms ranging from monthly to 2008. The Company expects that it will be able to renew its leases on satisfactory terms. All other properties are owned. ITEM 3. LEGAL PROCEEDINGS In December 1992, the Company was served with an "Imminent and Substantial Endangerment and Remedial Action Order" (the "Order") by the California Department of Toxic Substances Control relating to the facility leased by the Company in San Leandro, California. The Order requires Cintas and three other allegedly responsible parties to respond to alleged soil and groundwater contamination at and around the San Leandro facility. It is not possible at this time to estimate the loss or range of loss associated with the claim. Based on information that has been made available to the Company, however, it is not believed that the matter will have a material adverse effect on the Company's financial condition or results of its operations. The Company is also a party to incidental litigation brought in the ordinary course of business, none of which individually or in the aggregate, is considered to be material to its operations or financial condition. Cintas maintains insurance coverage against certain liabilities that it may incur in its operations from time to time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None in the fourth quarter of fiscal 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Market for Registrant's Common Stock@ and ASecurity Holder Information" on page 35 of the Registrant's Annual Report to Shareholders for 1998 is incorporated herein by reference. Dividend information is incorporated by reference to the Consolidated Statements of Shareholders' Equity on page 19. Dividends on the outstanding Common Stock are paid annually and amounted to $.18 and $.15 per share in fiscal 1998 and 1997, respectively. During the quarterly period ended May 31, 1998, the Registrant issued 2,493,569 shares of Common Stock for companies being acquired in 11 separate transactions to the 21 owners of those companies. In addition, the Registrant issued 3,959,262 shares of Common Stock for the acquisition of Uniforms To You in April 1998. The issuance was to three individuals, seventeen trusts with related trustees and a related corporation. The issuance's were exempt from the registration requirements of the Securities Act of 1933 as private offerings pursuant to Section 4(2) of the Act. ITEM 6. SELECTED FINANCIAL DATA The "Eleven Year Financial Summary" on page 16 of the Registrant's Annual Report to Share holders for 1998 is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" commencing on page 32 of the Registrant's Annual Report to Shareholders for 1998 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following Financial Statements of the Registrant shown on pages 17 through 31 of its Annual Report to Shareholders for 1998 are incorporated herein by reference: Consolidated Balance Sheets as of May 31, 1998 and 1997 Consolidated Statements of Income for the years ended May 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity for the years ended May 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended May 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Independent Auditors ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Items 10., 11., 12., and 13. of Part III are incorporated by reference to the Registrant's Proxy Statement for its 1998 Annual Shareholders' Meeting to be filed with the Commission pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K (a) (1) Financial Statements. All financial statements required to be filed by Item 8. of this Form and included in this report are listed in Item 8. No additional financial statements are filed because the requirements for paragraph (d) under Item 14 are not applicable to the Company. (a) (2) Financial Statement Schedule: For each of the three years in the period ended May 31, 1998. Schedule II: Valuation and Qualifying Accounts and Reserves. All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or Notes thereto. (a) (3) Exhibits. Exhibit Number Description of Exhibit Filing Status 3.1 Restated Articles of Incorporation (1) 3.3 Bylaws (1) Management Compensatory Contracts (Exhibits 10.1-10.5) 10.1 Incentive Stock Option Plan (2) 10.2 Partners' Plan, as Amended (3) 10.3 1990 Directors' Stock Option Plan (4) 10.4 1992 Employee Stock Option Plan, as Amended (5) 10.5 1994 Directors' Stock Option Plan (6) 13 1998 Annual Report to Shareholders (a) filed herewith 21 Subsidiaries of the Registrant filed herewith 23 Consent of Independent Auditors filed herewith 27 Financial Data Schedule - Twelve Months Ended May 1998 filed herewith 27.1 Financial Data Schedule - Restated Nine months ended February 1998 filed herewith 27.2 Financial Data Schedule - Restated Six Months Ended November 1997 filed herewith 27.3 Financial Data Schedule - Restated Three Months Ended August 1997 filed herewith 27.4 Financial Data Schedule - Restated Twelve Months Ended May 1997 filed herewith 27.5 Financial Data Schedule - Restated Nine Months Ended February 1997 filed herewith 27.6 Financial Data Schedule - Restated Six Months Ended November 1996 filed herewith 27.7 Financial Data Schedule - Restated Three Months Ended August 1996 filed herewith (a) Only portions of the 1998 Annual Report to Shareholders specifically incorporated by reference are filed herewith. A supplemental paper copy of this report will be provided to the SEC for informational purposes. (1) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended May 31, 1989. (2) Incorporated by reference to the Company's Registration Statement No. 33-23228 on Form S-8 filed under the Securities Act of 1933. (3) Incorporated by reference to the Company's Registration Statement No. 33-56623 on Form S-8 filed under the Securities Act of 1933. (4) Incorporated by reference to the Company's Registration Statement No. 33-71124 on Form S-8 filed under the Securities Act of 1933. (5) Incorporated by reference to the Company's Proxy Statement for its 1995 Annual Shareholders' Meeting. (6) Incorporated by reference to the Company=s Proxy Statement for its 1994 Annual Shareholders' Meeting. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINTAS CORPORATION DATE SIGNED: August 28, 1998 /s/ Robert J. Kohlhepp ------------------------ By: Robert J. Kohlhepp Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ Richard T. Farmer Chairman of the Board ---------------------- of Directors August 28, 1998 Richard T. Farmer /s/ Robert J. Kohlhepp Chief Executive ----------------------- Officer and Director August 28, 1998 Robert J. Kohlhepp /s/ Scott D. Farmer President, Chief Operating ----------------------- Officer and Director August 28, 1998 Scott D. Farmer /s/ James J. Gardner Director August 28, 1998 ----------------------- James J. Gardner /s/ Donald P. Klekamp Director August 28, 1998 ----------------------- Donald P. Klekamp /s/ William C. Gale Vice President and Chief ------------------------ Financial Officer (Principal William C. Gale Financial and Accounting Officer) August 28, 1998 CINTAS CORPORATION Schedule II - Valuation and Qualifying Accounts and Reserves (In Thousands)
Additions (1) (2) Balance At Charged to Charged to Balance At Beginning of Costs and Other End of Description Year Expenses Accounts Deductions Year May 31, 1996: Allowance for Doubtful Accounts $ 2,870 $2,168 $175 $ 2,420 (A) $ 2,793 ======= ====== ==== ======= ======= Reserve for Obsolete Inventory $17,146 $ 9 $ 1 $ 2,573 $14,583 ======= ====== ==== ======= ======= May 31, 1997: Allowance for Doubtful Accounts $ 2,793 $3,881 $530 $ 2,408 (A) $ 4,796 ======= ====== ==== ======= ======= Reserve for Obsolete Inventory $14,583 $4,584 $ 13 $ 3,629 $15,551 ======= ====== ==== ======= ======= May 31,1998: Allowance for Doubtful Accounts $ 4,796 $2,868 $960 $ 2,928 (A) $ 5,696 ======= ====== ==== ======= ======= Reserve for Obsolete Inventory $15,551 $5,509 $681 $ 3,348 $18,393 ======= ====== ==== ======= =======
(A) Uncollectible Accounts Charged-off, Net of Recoveries. EX-21 2 LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF REGISTRANT STATE/PROVINCE OF NAME INCORPORATION Cintas Corporation - East Coast Massachusetts Cintas Corporation - Ohio Ohio Cintas Corporation No. 1 Ohio Cintas Corp. No. 5 Michigan Cintas Corp. No. 13 Pennsylvania Cintas Corporation No. 41 Maryland Cintas Sales Corporation Ohio Cintas Corp. No. 45 North Carolina Corporate Business Services, Inc. Illinois Cintas - R.U.S., Inc. South Carolina Cintas Cleaning Services, Inc. Ohio Cintas Executive Services, Inc. Nevada Cintas Canada Limited Ontario, Canada Cintas Investment Corp. Ontario, Canada 910946 Ontario, Inc. Ontario, Canada Respond Industries, Incorporated Colorado American First Aid Company Maryland 1202327 Ontario, Inc. Ontario, Canada Benjamin's Uniforms, Inc. Wisconsin Petragon, Inc. Kansas Custom Uniform Rental, Inc. Florida Uniforms To You and Company Illinois UTY Canada, LTD. Quebec, Canada Affirmed Medical, Inc. California NCAVANS, Inc. California SanDVans, Inc. California Phase VI Corporation Ohio Ontario Dust Control Limited Ontario, Canada Ontario Dust Control Corporation Ontario, Canada Ludwig Cleaners, Ltd. Alberta, Canada Lumont Services, Ltd. British Columbia, Canada EX-23 3 CONSENT OF ERNST & YOUNG LLP Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Cintas Corporation of our report dated July 2, 1998, included in the 1998 Annual Report to Shareholders of Cintas Corporation. Our audits also included the financial statement schedule of Cintas Corporation listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement Number 33- 56623 on Form S-8 pertaining to the Partners= Plan, the Registration Statement Number 33- 23228 on Form S-8 pertaining to the Incentive Stock Option Plan and Registration Statement Number 33-71124 on Form S-8 pertaining to the 1990 Directors Plan and 1992 Stock Option Plan, of our report dated July 2, 1998, with respect to the financial statements and schedule of Cintas Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended May 31, 1998. Ernst & Young LLP Cincinnati, Ohio August 24, 1998 EX-27 4 FDS --
5 3-mos MAY-31-1998 MAY-31-1998 12,717,000 88,154,000 163,299,000 5,696,000 244,885,000 508,601,000 561,785,000 194,691,000 1,017,836,000 158,991,000 0 0 0 46,965,000 607,527,000 1,017,836,000 91,118,000 329,916,000 62,173,000 195,217,000 96,015,000 0 2,600,000 37,242,000 5,667,000 0 0 0 0 31,575,000 0.31 0.30
EX-27 5 FDS --
5 3-mos MAY-31-1998 FEB-28-1998 17,461,000 75,754,000 154,643,000 6,168,000 232,377,000 479,293,000 521,033,000 177,482,000 962,269,000 164,930,000 0 0 0 46,496,000 569,026,000 962,269,000 83,249,000 301,889,000 56,607,000 178,934,000 74,800,000 0 2,093,000 47,285,000 16,995,000 0 0 0 0 30,290,000 0.30 0.29
EX-27 6 FDS --
5 3-mos MAY-31-1998 NOV-30-1997 18,794,000 83,825,000 149,233,000 6,005,000 217,949,000 468,415,000 495,909,000 171,889,000 911,757,000 150,673,000 0 0 0 45,920,000 559,083,000 911,757,000 81,395,000 293,697,000 56,066,000 175,045,000 68,113,000 0 2,103,000 49,652,000 16,920,000 0 0 0 0 32,732,000 0.32 0.32
EX-27 7 FDS --
5 3-mos MAY-31-1998 AUG-31-1997 13,626,000 92,234,000 133,784,000 6,223,000 197,218,000 433,728,000 469,470,000 160,544,000 862,908,000 137,059,000 0 0 0 45,529,000 527,306,000 862,908,000 69,806,000 272,805,000 48,379,000 161,050,000 67,693,000 0 2,279,000 42,905,000 14,645,000 0 0 0 0 28,260,000 0.28 0.28
EX-27 8 FDS --
5 3-mos MAY-31-1997 MAY-31-1997 16,362,000 88,655,000 127,771,000 4,796,000 193,188,000 424,168,000 448,969,000 149,787,000 843,290,000 146,040,000 0 0 0 45,299,000 504,526,000 843,290,000 68,645,000 266,022,000 46,493,000 157,114,000 61,877,000 0 2,509,000 45,698,000 16,019,000 0 0 0 0 29,679,000 0.30 0.29
EX-27 9 FDS --
5 3-mos MAY-31-1997 FEB-28-1997 10,304,000 98,436,000 118,567,000 5,197,000 189,962,000 415,527,000 432,321,000 143,346,000 826,792,000 138,291,000 0 0 0 44,966,000 491,649,000 826,792,000 59,016,000 244,455,000 39,655,000 144,788,000 59,805,000 0 2,564,000 38,493,000 13,860,000 0 0 0 0 24,633,000 0.25 0.25
EX-27 10 FDS --
5 3-mos MAY-31-1997 NOV-30-1996 13,577,000 86,962,000 121,468,000 3,952,000 186,735,000 407,545,000 420,367,000 139,887,000 806,738,000 141,639,000 0 0 0 44,834,000 471,570,000 806,738,000 68,364,000 250,256,000 48,573,000 150,952,000 56,813,000 0 2,521,000 41,051,000 13,713,000 0 0 0 0 27,338,000 0.28 0.27
EX-27 11 FDS --
5 3-mos MAY-31-1997 AUG-31-1996 13,761,000 81,797,000 111,968,000 3,054,000 180,554,000 387,095,000 406,169,000 135,531,000 775,830,000 127,480,000 0 0 0 44,195,000 448,854,000 775,830,000 59,975,000 234,474,000 42,338,000 140,802,000 55,540,000 0 2,488,000 36,524,000 12,186,000 0 0 0 0 24,338,000 0.24 0.24
EX-13 12 ANNUAL REPORT FINANCIAL HIGHLIGHTS Years Ended May 31 1998 1997 % Change In thousands except per share data) OPERATING RESULTS Net Revenue 1,198,307 $995,207 20% Pro Forma Net Income 117,907 100,194 18% Return on Average Equity 19.6% 19.7% -- FINANCIAL CONDITION Shareholders' Equity $654,492 $549,825 19% Working Capital 349,610 278,128 26% Current Ratio 3.20:1 2.90:1 10% PER SHARE DATA Pro Forma Net Income (Basic) $1.16 $1.01 15% Pro Forma Net Income (Diluted) 1.14 .99 15% Shareholders' Equity (Book Value) 6.26 5.47 14% Dividends . .18 .15 20% ELEVEN YEAR FINANCIAL SUMMARY Years Ended May(In thousands except per share data) 10 YEAR
COMPD 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 GROWTH Net Revenue $280,961 334,533 390,916 432,492 478,207 541,514 625,094 735,870 875,833 995,207 1,198,307 15.6% Net Income $22,742 27,801 30,491 34,472 40,746 49,009 59,182 74,929 87,744 105,988 122,857 18.4% Pro Forma Net Income $21,139 26,003 29,536 33,274 40,153 47,427 56,500 70,268 82,939 100,194 117,907 18.8% Basic EPS $0.26 0.30 0.32 0.36 0.42(a) 0.51 0.61 0.77 0.89 1.07 1.21 16.6% Pro Forma Basic EPS $0.24 0.28 0.31 0.35 0.42(a) 0.49 0.58 0.72 0.84 1.01 1.16 17.1% Diluted EPS $0.26 0.30 0.32 0.36 0.42(a) 0.50 0.60 0.75 0.88 1.05 1.19 16.4% Pro Forma Diluted EPS $0.24 0.28 0.31 0.35 0.42(a) 0.48 0.57 0.71 0.83 0.99 1.14 16.9% Dividends Per Share $0.02 0.03 0.04 0.05 0.06 0.07 0.09 0.10 0.13 0.15 0.18 24.6% Total Assets $247,306 277,289 333,211 377,454 411,814 508,361 568,667 665,236 750,762 843,290 1,017,836 15.2% Shareholders' Equity $118,732 153,405 178,942 208,690 243,499 288,594 344,015 404,744 465,529 549,825 654,492 18.6% Return on Average Equity 19.3% 19.1% 17.8% 17.2% 17.8% 17.8% 17.9% 18.8% 19.1% 19.7% 19.6% Long-Term Debt $73,144 55,485 83,947 91,034 87,457 120,180 97,264 128,641 133,422 125,566 180,007
(a) Includes earnings of $.03 per share due to the adoption of SFAS No. 96. Note: Results prior to April 8, 1998, have been restated to include Uniforms To You Companies. Results prior to October 1, 1991, have also been restated to include Rental Uniform Service of Greenville, S.C., Inc. CONSOLIDATED STATEMENTS OF INCOME Years Ended May 31 (In thousands except per share data) 1998 1997 1996 (Restated) (Restated) - -------------------------------------------------------------------------------- Revenue: Net rentals $872,739 $739,207 $648,616 Other service revenue $325,568 256,000 227,217 ---------------------------------- 1,198,307 995,207 875,833 Costs and expenses (income): Cost of rentals 487,021 416,597 369,386 Cost of other service revenue 223,225 177,058 159,189 Selling and administrative expenses 287,155 233,481 204,826 Acquisition-related expenses 17,116 553 56 Interest income (4,719) (4,328) (2,658) Interest expense 9,075 10,080 10,243 -------------------------------------- 1,018,873 833,441 741,042 ----------------------------------- Income before income taxes 179,434 161,766 134,791 Income taxes 56,577 55,778 47,047 ------------------------------------ Net income $122,857 $105,988 $87,744 ---------------------------------- Basic earnings per share $1.21 $1.07 $.89 ------------------------------------- Diluted earnings per share $1.19 $1.05 $.88 ------------------------------------- Dividends declared and paid per share $ .18 $ .15 $.13 ------------------------------------- Net income as reported $122,857 $105,988 $87,744 Pro forma adjustment for income taxes 4,950 5,794 4,805 ------------------------------------- Pro forma net income . $117,907 $100,194 $82,939 ---------------------------------- Pro forma basic earnings per share $1.16 $1.01 $.84 ------------------------------------- Pro forma diluted earnings per share $1.14 $ .99 $.83 ------------------------------------- See accompanying notes. CONSOLIDATED BALANCE SHEETS As of May 31 (In thousands except share data) 1998 1997 (Restated) - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 12,717 $ 16,362 Marketable securities 88,154 88,655 Accounts receivable, principally trade, less allowance of $5,696 and $4,796, respectively 157,603 122,975 Inventories 108,226 80,344 Uniforms and other rental items in service 136,659 112,844 Prepaid expenses 5,242 2,988 Total current assets 508,601 424,168 --------------------------------- Property, plant and equipment, at cost, net 367,094 299,182 Other assets 142,141 119,940 --------------------------------- $1,017,836 $843,290 --------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 41,801 $ 32,675 Accrued compensation and related liabilities 16,615 10,885 Accrued liabilities 61,239 61,269 Deferred income taxes 31,219 32,889 Long-term debt due within one year 8,117 8,322 --------------------------------- Total current liabilities 158,991 146,040 Long-term debt due after one year 180,007 125,566 Deferred income taxes 24,346 21,859 Shareholders' equity: Preferred stock, no par value; 100,000 shares authorized, none outstanding -- -- Common stock, no par value; 120,000,000 shares authorized, 104,610,716 and 100,492,840 shares issued and outstanding, respectively 46,965 45,299 Retained earnings 610,025 505,568 Foreign currency translation adjustment (2,498) (1,042) ------------------------------ Total shareholders' equity 654,492 549,825 ---------------------------- $1,017,836 $843,290 ------------------------------- See accompanying notes. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) - --------------------------------------------------------------------------------
Foreign Currency Total Common Stock Retained Translation Shareholders' Shares Amount Earnings Adjustment Equity ------------------------------------------------------------------------------------ Balance at May 31, 1995 94,010 $ 42,035 $ 323,284 $ (975) $ 364,344 Adjustment for pooling of interests 3,959 260 40,115 25 40,400 ------------------------------------------------------------------------------------ Balance at May 31, 1995, as restated 97,969 42,295 363,399 (950) 404,744 Net income -- -- 87,744 -- 87,744 Dividends -- -- (11,794) -- (11,794) Distributions to S corporation shareholders -- -- (16,903) -- (16,903) Stock options exercised net of shares surrendered 388 768 -- -- 768 Tax benefit resulting from exercise of employee stock options -- 854 -- -- 854 Foreign currency translation adjustment -- -- -- 116 116 ------------------------------------------------------------------------------------ Balance at May 31, 1996, as restated 98,357 43,917 422,446 (834) 465,529 Net income -- -- 105,988 -- 105,988 Dividends -- -- (14,477) -- (14,477) Distributions to S corporation shareholders -- -- (13,764) -- (13,764) Effects of acquisitions 1,758 -- 5,375 -- 5,375 Stock options exercised net of shares surrendered. 378 1,121 -- -- 1,121 Tax benefit resulting from exercise of employee stock options -- 261 -- -- 261 Foreign currency translation adjustment -- -- -- (208) (208) ------------------------------------------------------------------------------------ Balance at May 31, 1997, as restated 100,493 45,299 505,568 (1,042) 549,825 549,825 Net income -- -- 122,857 -- 122,857 Dividends -- -- (17,634) -- (17,634) Distributions to S corporation shareholders -- -- (12,423) -- (12,423) Effects of acquisitions 3,850 13 11,657 -- 11,670 Stock options exercised net of shares surrendered 268 896 -- -- 896 Tax benefit resulting from exercise of employee stock options -- 757 -- -- 757 Foreign currency translation adjustment -- -- -- (1,456) (1,456) ------------------------------------------------------------------------------------ Balance at May 31, 1998 104,611 $46,965 $610,025 $(2,498) $654,492 ------------------------------------------------------------------------------------
See accompanying notes. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31 (In thousands) 1998 1997 1996 (Restated) (Restated) - ---------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $122,857 $105,988 $87,744 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 45,774 38,504 32,378 Amortization of deferred charges. 11,463 11,945 12,518 Deferred income taxes 11,865 8,329 6,300 Change in current assets and liabilities, net of acquisitions of businesses: Accounts receivable (23,777) (14,029) (14,646) Inventories (21,824) (4,311) (2,039) Uniforms and other rental items in service (22,422) (12,242) (11,637) Prepaid expenses (5,509) (363) 52 Accounts payable (3,440) (4,927) 9,167 Accrued compensation and related liabilities 5,730 1,263 (1,428) Accrued liabilities (1,997) 5,686 9,352 -------------------------------- ----- Net cash provided by operating activities 118,720 135,843 127,761 Cash flows from investing activities: Capital expenditures (96,964) (70,095) (59,850) Proceeds from sale or redemption of marketable securities 117,342 49,290 74,220 Purchase of marketable securities (116,841) (64,468) (108,900) Acquisitions of businesses, net of cash acquired (13,691) (9,060) (2,307) Other (1,923) (979) (2,131) ----------------------------- ------- Net cash used by investing activities (112,077) (95,312) (98,968) Cash flows from financing activities: Proceeds from issuance of long-term debt 47,804 -- 7,730 Repayment of long-term debt (26,950) (7,874) (6,484) Issuance of common stock 896 1,121 768 Dividends paid (17,634) (14,477) (11,794) Distributions to S corporation shareholders (12,423) (13,764) (16,903) Other (1,981) (1,197) 969 ----------------------------- --- Net cash used in financing activities (10,288) (36,191) (25,714) Net (decrease) increase in cash and cash equivalents (3,645) 4,340 3,079 ----------------------------- ----- Cash and cash equivalents at beginning of year. 16,362 12,022 8,943 ---------------------------- ----- Cash and cash equivalents at end of year $12,717 $16,362 $12,022 --------------------------- -------
See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands except per share and share data) 1. SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- BUSINESS DESCRIPTION. Cintas designs, manufactures and implements corporate identity uniform programs which it rents or sells to customers throughout the United States and Canada. The Company also provides ancillary services including entrance mats, sanitation supplies and first aid products and services. The Company provides these highly specialized services to businesses of all types--from small service and manufacturing companies to major corporations that employ thousands of people. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Cintas Corporation and its subsidiaries. Intercompany balances and transactions have been eliminated. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with a maturity of three months or less, at date of purchase, to be cash equivalents. INVENTORIES. Inventories are valued at the lower of cost (first-in, first-out) or market. Substantially all inventories represent finished goods. UNIFORMS AND OTHER RENTAL ITEMS IN SERVICE. These items are valued at cost less amortization, calculated using the straight-line method generally over periods of eight to thirty-six months. PROPERTY, PLANT AND EQUIPMENT. Depreciation is calculated using the straight-line method over the following estimated useful lives, in years: Buildings and Improvements. . . . . . 5 to 40 Equipment . . . . . . . . . . . . . . 3 to 10 Leasehold Improvements . .. . . . . . .2 to 5 Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. OTHER ASSETS. Other assets consist primarily of service contracts and noncompete or consulting agreements obtained through the acquisition of businesses, which are amortized by use of the straight-line method over the estimated lives of the agreements which are generally five to ten years, and goodwill, which is amortized using the straight-line method over forty years. INTEREST RATE SWAP AGREEMENTS. Periodic settlements under interest rate swap agreements are recognized as adjustments of interest expense for the relevant periods. REVENUE RECOGNITION. Rental revenue is recognized when services are performed and sales revenue is recognized when products are shipped. The Company also establishes an estimate of allowances for uncollectible accounts when revenue is recorded. PRO FORMA ADJUSTMENT FOR INCOME TAXES. During fiscal 1998, the Company acquired Uniforms To You Companies (UTY) in a merger transaction accounted for as a pooling of interests. Prior to the merger, UTY had elected S Corporation status for income tax purposes. As a result of the merger, UTY terminated its S Corporation election. Pro forma adjustment for income taxes presents the pro forma tax expense of UTY as if UTY had been a C Corporation during the financial statement periods presented. FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and assumptions were used by the Company in estimating the fair value of financial instruments: Cash and cash equivalents. The amounts reported approximate market value. Marketable securities. The amounts reported are at cost which approximates market value. Market values are based on quoted market prices. Long-term debt. The amounts reported are at carrying value which approximates market value. Market values are determined using similar debt instruments currently available to the Company that are consistent with the terms, interest rates and maturities. OTHER ACCOUNTING PRONOUNCEMENTS. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, and No. 131, Disclosures about Segments of an Enterprise and Related Information. These new pronouncements, which become effective in fiscal 1999, are presently being reviewed by the Company and are not expected to have a material effect on the Company's financial position or results of operations although they may result in additional disclosures in the future. 2. MARKETABLE SECURITIES - ------------------------------------------------------------------------------- All marketable securities are comprised of debt securities and classified as available-for-sale. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value determined to be other than temporary on available-for-sale securities are included in interest income. The cost of the securities sold is based on the specific identification method. Interest on securities classified as available-for-sale are included in interest income. The following is a summary of marketable securities at May 31, 1998 and 1997: 1998 1997 - -------------------------------------------------------------------------------- ESTIMATED ESTIMATED COST FAIR VALUE COST FAIR VALUE (Restated) (Restated) Obligations of state and political subdivisions $65,791 $65,757 $63,573 $63,476 U.S. Treasury securities and obligations of U.S. government agencies 4,938 4,918 11,444 11,420 Other debt securities 17,425 17,504 13,638 13,621 ------------------------------------------------ $88,154 $88,179 $88,655 $88,517 ------------------------------------------------ The gross realized gains on sales of available-for-sale securities totaled $84, $31 and $77 for the years ended May 31, 1998, 1997 and 1996, and the gross realized losses totaled $25, $96 and $127, respectively. Net unrealized gains/(losses) are $25 and $(138) at May 31, 1998 and 1997, respectively. The amortized cost and estimated fair value of debt and marketable securities at May 31, 1998, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay the obligations without prepayment penalties. ESTIMATED COST FAIR VALUE Due in one year or less $ 44,669 $ 44,660 Due after one year through three years 28,478 28,562 Due after three years 15,007 14,957 -------- ------- $88,154 $88,179 3. PROPERTY, PLANT AND EQUIPMENT 1998 1997 (Restated) - ------------------------------------------------------------------------------- Land $ 31,238 $ 27,626 Buildings and improvements 160,523 144,349 Equipment 316,812 252,839 Leasehold improvements 3,956 3,446 Construction in progress 49,256 20,709 ------------ ------ 561,785 448,969 Less accumulated depreciation 194,691 149,787 ----------- ------- $367,094 $299,182 4. OTHER ASSETS 1998 1997 (Restated) - -------------------------------------------------------------------------------- Goodwill $ 72,544 $ 58,004 Service contracts 69,021 62,240 Noncompete and consulting agreements 39,994 42,381 ----------- ------ 181,559 162,625 Less accumulated amortization 56,933 53,382 ----------- ------ 124,626 109,243 Other 17,515 10,697 ----------- ------ $142,141 $119,940 5. LONG-TERM DEBT 1998 1997 (Restated) - ------------------------------------------------------------------------------- Secured term notes due through 2003 at an average rate of 6.99% $ 36,257 $ 35,390 Unsecured term notes due through 2003 at an average rate of 7.08%. 32,967 35,714 Unsecured notes due through 2009 at an average rate of 6.25% 97,906 30,884 Unsecured revolving note due in 2000 at a rate of 6.05% 10,000 20,880 Industrial development revenue bonds due through 2013 at an average rate of 5.18% 10,879 10,888 Other long-term obligations 115 132 ------------------------- 188,124 133,888 Less amounts due within one year 8,117 8,322 -------------------------- $180,007 $125,566 Debt in the amount of $9,804 is secured by assets with a carrying value of $10,127 at May 31, 1998, and letters of credit in the amount of $7,558. Maturities of long-term debt during each of the next five years are: $8,117, $87,523, $11,542, $29,094 and $5,445, respectively. The Company has entered into an interest rate swap agreement to manage its exposure to swings in short-term interest rates. This agreement totals $10,000, expires in March 2001 and allows the Company to pay an effective interest rate of approximately 6.16%. Interest expense is net of capitalized interest of $1,190, $551 and $435 for the years ended May 31, 1998, 1997 and 1996, respectively. Interest paid, net of amount capitalized, was $8,648, $10,479 and $10,963 for the years ended May 31, 1998, 1997 and 1996, respectively. 6. LEASES - -------------------------------------------------------------------------------- The Company conducts certain operations from leased facilities and leases certain equipment. Most leases contain renewal options for periods from one to ten years. The lease agreements provide for increases in rentals if the options are exercised based on increases in certain price level factors or prearranged increases. The minimum rental payments for each of the next five years ending May 31, 2003, and thereafter are: $5,903, $4,600, $3,551, $2,920, $2,595 and $8,845, respectively. Rent expense under operating leases during the years ended May 31, 1998, 1997 and 1996, was $8,654, $7,189 and $5,885, respectively. 7. INCOME TAXES 1998 1997 1996 - ------------------------------------------------------------------------------- Income taxes consist of the following components: Current: Federal $49,326 $41,071 $35,001 State and local 6,434 6,378 5,746 ------------------------ ----- 55,760 47,449 40,747 Deferred 817 8,329 6,300 ------------------------ ----- $56,577 $55,778 $47,047 ---------------------- ------- 1998 1997 1996 (Restated) Restated) - -------------------------------------------------------------------------------- Reconciliation of income tax expense using the statutory rate and actual income tax expense is as follows: Income taxes at the U.S. federal statutory rate $62,802 $56,619 $47,177 State and local income taxes, net of federal benefit 6,446 5,394 4,648 Nontaxable income earned (1,201) (1,048) (599) Tax credits (288) (206) (216) Nontaxable income of company acquired in pooling of interests (4,950) (5,794) (4,805) Deferred tax benefit arising from pooling of interests (8,280) -- -- Other 2,048 813 842 ---------------------------------- $56,577 $55,778 $47,047 ----------------------------------- The components of deferred income taxes included on the balance sheets at May 31, 1998 and 1997, are as follows: 1998 1997 - --------------------------------------------------------------------------- Deferred tax assets: Employee benefits $ 5,719 $ 5,818 Allowance for bad debts and other 10,388 7,496 --------- ----- 16,107 13,314 Deferred tax liabilities: In-service inventory 48,321 41,022 Depreciation 24,654 21,083 Other (1,303) 5,957 ---------- ----- 71,672 68,062 Net deferred tax liability $55,565 $54,748 ------- ------- Income taxes paid were $54,406, $45,207 and $40,817 for the years ended May 31, 1998, 1997 and 1996, respectively. 8. ACQUISITIONS - -------------------------------------------------------------------------------- During the year ended May 31, 1998, the Company completed nine significant acquisitions (excluding insignificant acquisitions). Eight of these acquisitions were accounted for as a pooling of interests and one as a purchase. During the year ended May 31, 1997, the Company completed four significant acquisitions (excluding insignificant acquisitions). Three of these acquisitions were accounted for as a pooling of interests and one as a purchase. POOLING OF INTERESTS The impact of seven of the 1998 pooling of interests transactions and the three 1997 pooling of interests transactions on the Company's historical consolidated financial statements were not material, consequently, prior period and current year financial statements have not been restated for these transactions. In April 1998, the Company acquired Uniforms To You (UTY), a direct sale uniform provider. The acquisition was accounted for using the pooling of interests method of accounting. The Company exchanged 3,959,262 shares of its common stock for all the outstanding stock of UTY. In accordance with the pooling of interests method of accounting, no adjustment has been made to the historical carrying amount of assets and liabilities of UTY. The accompanying consolidated financial statements have been restated to include the financial position and operating results of UTY for all periods prior to the merger. A reconciliation of revenue, pro forma net income and pro forma basic and diluted earnings per share of Cintas (as previously reported), UTY, and combined, including the pro forma adjustment for income taxes for UTY, is as follows: 1998 1997 1996 - -------------------------------------------------------------------------- Revenue: Cintas (as previously reported) $839,949 $730,130 UTY 155,258 145,703 ----------------------------------- Combined $1,198,307 $995,207 $875,833 ----------------------------------- Pro forma net income: Cintas (as previously reported) $90,840 $75,183 UTY 15,148 12,561 Pro forma adjustment for UTY income taxes 5,794 4,805 ------------------------------------- Combined $ 117,907 $100,194 $82,939 ------------------------------------ Pro forma basic earnings per share: Cintas (as previously reported) $ .95 $.80 ----------------------------------- Combined $1.16 $1.01 $.84 ----------------------------------- Pro forma diluted earnings per share: Cintas (as previously reported) $ .94 $.79 ------------------------------------ Combined $1.14 $ .99 $.83 ------------------------------------ In accordance with accounting rules for pooling of interests transactions, charges to operating income for acquisition- related expenses were recorded upon completion of the pooling acquisitions. These acquisition-related expenses totaled $16,000 ($11,000 after tax) for the UTY transaction and primarily consisted of a pre-established compensation program for UTY's senior executives. PURCHASES For all acquisitions accounted for as purchases, including insignificant acquisitions, the purchase price paid for each has been allocated to the fair value of the assets acquired and liabilities assumed. The following summarizes the aggregate purchase price for all businesses acquired which have been accounted for as purchases: 1998 1997 1996 - -------------------------------------------------------------------------------- Fair value of assets acquired $37,477 $12,845 $2,407 Liabilities assumed and incurred 1,787 2,499 100 ----------------------------------- Total cash paid for acquisitions $35,690 $10,346 $2,307 ----------------------------------- The results of operations for the acquired businesses are included in the consolidated statements of income from the dates of acquisition. The pro forma revenue, net income and earnings per share information for acquired businesses are not presented because they are not material. 9. CINTAS PARTNERS' PLAN - -------------------------------------------------------------------------------- The Cintas Partners' Plan (the Plan) is a non-contributory profit sharing plan and ESOP for the benefit of Company employees who have completed one year of service. The Plan also includes a 401(k) savings feature covering substantially all employees. The amount of contributions to the profit sharing plan and ESOP, as well as the matching contribution to the 401(k), are made at the discretion of the Company. Total contributions, including the Company's matching contributions, were $8,820, $7,331 and $6,188 for the years ended May 31, 1998, 1997 and 1996, respectively. 10. EARNINGS PER SHARE - -------------------------------------------------------------------------------- Earnings per share and pro forma earnings per share are computed in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share. The basic computations are computed based on the weighted average number of common shares outstanding during each period. The diluted computations reflect the potential dilution that could occur if stock options were exercised into common stock, under certain circumstances, that then would share in the earnings of the Company. The following table represents a reconciliation of the shares used to calculate basic and diluted earnings per share for the respective years: 1998 1997 1996 - ------------------------------------------------------------------------------- Numerator: Net income $122,857 $105,988 $87,744 Denominator: Denominator for basic earnings per share - weighted average shares ('000's) 101,751 99,221 98,157 Effect of dilutive securities - employee stock options ('000's) 1,872 1,504 1,504 ------------------------------------ Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions ('000's) 103,623 100,725 99,661 ---------------------------------- Basic earnings per share $1.21 $1.07 $.89 ------------------------------------ Diluted earnings per share $1.19 $1.05 $.88 ------------------------------------ On October 22, 1997, the Board of Directors approved a 2-for-1 common stock split effective November 18, 1997. All share and per share information has been adjusted to retroactively reflect the effect of this stock split for all periods presented. 11. STOCK BASED COMPENSATION The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations, in accounting for its stock options. The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation. All of the Company's stock options have been issued with an exercise price equal to the estimated fair market value of the underlying stock at the date of grant. Accordingly, under Opinion No. 25, no compensation expense is recognized. Under the stock option plan adopted by the Company in fiscal 1993, the Company may grant officers and key employees incentive stock options and/or non-qualified stock options to purchase an aggregate of 4,600,000 shares of the Company's common stock. Options are granted at the fair market value of the underlying common stock on the date of grant and generally become exercisable at the rate of 20% per year commencing five years after grant, so long as the holder remains an employee of the Company. The information presented in the following table relates to stock options granted and outstanding under either the plan adopted in fiscal 1993 or under a similar plan which expired in June 1993: WEIGHTED AVG. SHARES EXERCISE PRICE Outstanding May 31, 1995 (562,718 shares exercisable) 2,739,478 $ 10.16 Granted 627,500 19.67 Cancelled (56,840) 12.15 Exercised (485,246) 6.48 --------- ---- Outstanding May 31, 1996 (396,012 shares exercisable) 2,824,892 12.86 Granted 780,100 25.89 Cancelled (126,400) 14.83 Exercised (272,060) 5.83 --------- ---- Outstanding May 31, 1997 (360,672 shares exercisable) 3,206,532 16.56 Granted 1,111,200 36.37 Cancelled (153,798) 22.52 Exercised (277,017) 6.89 --------- ---- Outstanding May 31, 1998 (334,717 shares exercisable) 3,886,917 $22.65 --------- ------ The following table summarizes information about stock options outstanding at May 31, 1998: OUTSTANDING OPTIONS EXERCISABLE OPTIONS Average Weighted Weighted Range of Remaining Average Average Exercise Number Option Exercise Number Exercise Price Outstanding Life Price Exercise Price - -------------------------------------------------------------------------------- $5.50-$13.75 1,030,317 3.59 $10.91 274,717 $ 8.61 13.88-24.38 1,053,400 6.58 18.08 33,200 17.76 25.25-31.00 751,400 8.25 25.93 26,800 27.08 34.88-50.25 1,051,800 9.23 36.38 -- -- - -------------------------------------------------------------------------------- $ 5.50-$50.25 3,886,917 6.83 $22.65 334,717 $11.00 - -------------------------------------------------------------------------------- At May 31, 1998, 1,210,700 shares of common stock are reserved for future issuance. Pro forma information regarding earnings and earnings per share is required by Statement No. 123 and has been determined as if the Company had accounted for its stock options granted subsequent to May 31, 1995, under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 1998 1997 1996 - -------------------------------------------------------------------------------- Risk free interest rate 5.50% 6.63% 6.46% Dividend yield .45% .53% .56% Expected volatility of the Company's common stock 24% 26% 27% Expected life of the option (in years) 8 8.5 9 The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are freely transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the Company's opinion existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information is as follows: 1998 1997 1996 - -------------------------------------------------------------------------------- Net income: As reported $122,857 $105,988 $87,744 Pro forma for Statement No. 123 $120,167 $104,711 $87,259 Earnings per share: Pro forma basic earnings per share for Statement No. 123 $1.18 $1.06 $.89 Pro forma diluted earnings per share for Statement No. 123 $1.16 $1.04 $.88 The effects of providing pro forma disclosure are not representative of earnings reported for future years. - -------------------------------------------------------------------------------- 12. QUARTERLY FINANCIAL DATA (UNAUDITED) - -------------------------------------------------------------------------------- The following is a summary of the results of operations for each of the quarters within the years ended May 31, 1998 and 1997. The reported amounts differ from amounts previously reported in Form 10-Q due to the restatement of the accompanying consolidated financial statements which have been restated to include the financial position and operating results of UTY, an acquisition accounted for using the pooling of interests method of accounting. FIRST SECOND THIRD FOURTH MAY 31, 1998 QUARTER QUARTER QUARTER QUARTER (Restated) (Restated) (Restated) - -------------------------------------------------------------------------------- Revenue: Cintas (as previously reported) $235,501 $ 251,984 $262,837 UTY 37,304 41,713 39,052 ------------------------------------------- Combined $272,805 $293,697 $301,889 $329,916 ------------------------------------------- Gross profits: Cintas (as previously reported) $ 96,940 $102,086 $107,808 UTY 14,815 16,566 15,147 ------------------------------------------- Combined $111,755 $118,652 $122,955 $134,699 ------------------------------------------- Pro forma net income: Cintas (as previously reported) $ 24,058 $ 27,976 $ 27,674 UTY 4,202 4,756 2,616 Pro forma adjustment for UTY income taxes 1,607 1,819 1,001 ------------------------------------------- Combined $ 26,653 $ 30,913 $ 29,289 $31,052(1) ------------------------------------------- Basic earnings per share $.28 $.32 $.30 $.31 --------------------------------------- Diluted earnings per share $.28 $.32 $.29 $.30 --------------------------------------- Pro forma basic earnings per share $.26 $.31 $.29 $.30 --------------------------------------- Pro forma diluted earnings per share $.26 $.30 $.28 $.30 --------------------------------------- Weighted average number of shares outstanding ('000's) 100,771 101,431 101,840 102,957 ---------------------------------------- (1) The net income of Cintas and UTY before the pro forma adjustment for UTY income taxes, was $31,575. FIRST SECOND THIRD FOURTH MAY 31, 1998 QUARTER QUARTER QUARTER QUARTER (Restated) (Restated) (Restated)(Restated) - -------------------------------------------------------------------------------- Revenue: Cintas (as previously reported) $192,786 $208,568 $209,952 $228,643 UTY 41,688 41,688 34,503 37,379 ------------------------------------------- Combined $234,474 $250,256 $244,455 $266,022 Gross profits Cintas (as previously reported) $ 78,239 $ 83,871 $ 84,599 92,581 UTY 15,433 15,433 15,069 16,327 -------------------------------------------- Combined $ 93,672 $ 99,304 $ 99,668 $108,908 -------------------------------------------- Pro forma net income Cintas (as previously reported) $ 19,697 $ 22,698 $ 22,454 $ 25,991 UTY 4,641 4,641 2,178 3,688 Pro forma adjustment for UTY income taxes 1,775 1,775 833 1,411 -------------------------------------------- Combined $ 22,563 $ 25,564 $ 23,799 $ 28,268 -------------------------------------------- Basic earnings per share $.24 $.28 $.25 $.30 -------------------------------------------- Diluted earnings per share $.24 $.27 $.25 $.29 -------------------------------------------- Pro forma basic earnings per share $.23 $.26 $.24 $.28 -------------------------------------------- Pro forma diluted earnings per share $.23 $.25 $.24 $.27 -------------------------------------------- Weighted average number of shares outstanding ('000's) 98,490 98,798 99,128 100,475 -------------------------------------------- REPORT OF AUDIT COMMITTEE The Audit Committee (the Committee) of the Board of Directors is composed of three independent directors. The Committee, which held two meetings during fiscal 1998, oversees the Company's financial reporting process on behalf of the Board of Directors. In fulfilling its responsibilities, the Committee recommended to the Board of Directors the selection of the Company's independent auditors. The Committee discussed with the independent auditors the overall scope and specific plan for their audits. The Committee also discussed the Company's consolidated financial statements and the adequacy of the Company's system of internal control. The Committee meets with the Company's independent auditors, without management present, to discuss the results of their evaluation of the system of internal control and the overall quality of the Company's financial reporting. The meetings are designed to facilitate any private communications with the Committee desired by the independent auditors. Roger L. Howe, Chairman Audit Committee July 2, 1998 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Cintas Corporation We have audited the accompanying consolidated balance sheets of Cintas Corporation as of May 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended May 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cintas Corporation at May 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 1998, in conformity with generally accepted accounting principles. Cincinnati, Ohio July 2, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1998 COMPARED TO FISCAL 1997 Fiscal 1998 marked another year of uninterrupted growth for the Company. The Company's historical financial results have been restated as if Cintas and Uniforms To You (UTY) had always been one company. Total revenue was $1.2 billion, an increase of 20% over fiscal 1997. Pretax income before acquisition-related costs of $17 million (primarily consisting of a pre-established compensation program for UTY's senior executives) increased 21%. Including those acquisition-related costs, pretax income of $179 million increased 11% over the prior fiscal year. Net income increased 16% to $123 million including the acquisition-related costs which were partially offset by establishing a deferred tax asset for the UTY acquisition. When UTY was a privately-held company, it was an "S" Corporation, meaning that all taxes were paid by the shareholders of the company rather than the company and as such, UTY income did not include any tax provision. According to accounting rules for acquisitions that are treated as pooling of interests, UTY's results were added to the Company's historical results. Pro forma tax amounts and net income amounts have been disclosed to reflect net income on a true after tax basis. On a pro forma basis, net income of $118 million and basic earnings per share of $1.16 represent increases of 18% and 15%, respectively, over the prior fiscal year. Net rental revenue increased 18%, primarily due to growth in the customer base. Other service revenue increased 27% due to growth in the Company's National Account, First Aid, Catalog and UTY Divisions. Return on equity of 20% was comparable with the prior year. Net interest expense decreased $1 million primarily due to repayment of debt and a favorable interest rate environment. The Company's effective pro forma tax rate was 34% and 38%, respectively, for fiscal years 1998 and 1997. Fiscal year 1998 income taxes were offset by an $8 million credit that established a deferred tax asset from assets pertaining to UTY. A deferred tax asset results from the existence of book reserves (i.e. obsolescence reserves on inventory) which have already been expensed for book purposes but have not yet been deducted for tax purposes. Cash, cash equivalents and marketable securities decreased by $4 million, primarily due to capital expenditures for new facilities and equipment to accommodate growth. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of municipal bonds and federal government securities. Accounts receivable increased $35 million due to sales growth and acquisitions made during the year. Inventories increased $28 million reflecting growth in the Company, expanding product lines and the investment in the Company's First Aid Division. Net property, plant and equipment increased by $68 million. In fiscal 1998, the Company completed construction on five new uniform rental facilities and had thirteen uniform rental facilities in various stages of construction to accommodate growth in rental operations. FISCAL 1997 COMPARED TO FISCAL 1996 During fiscal 1997, total revenue was $995 million, net income was $106 million and basic earnings per share was $1.07, increasing 14%, 21% and 20%, respectively. Pro forma net income of $100 million and pro forma basic earnings per share of $1.01 represented increases of 21% and 20%, respectively. Net rental revenue increased 14%, primarily due to growth in the customer base. Other service revenue increased 13%. Income before taxes increased 20% to $162 million. Net interest expense decreased $2 million primarily due to an increase in interest income (related to a higher level of cash and marketable securities on hand) combined with a decrease in interest expense (related to a lower amount of long-term debt and improved interest rates). The Company's pro forma effective tax rate was 38% in both 1997 and 1996. Cash, cash equivalents and marketable securities increased by $20 million primarily due to strong cash flow from operations. The cash, cash equivalents and marketable securities will be used to finance future acquisitions and capital expenditures. Marketable securities consist primarily of municipal bonds and federal government securities. Accounts receivable increased $18 million due to sales growth and acquisitions made during the year. Inventories increased $7 million due to new and expanded product lines for rental and catalog customers, as well as first aid product lines. Net property, plant and equipment increased by $35 million. In fiscal 1997, the Company constructed five new uniform rental facilities to accommodate growth in rental operations. FINANCIAL CONDITION At May 31, 1998, the Company had $101 million in cash, cash equivalents and marketable securities. The Company's investment policy pertaining to marketable securities is conservative. Preservation of principal while earning an attractive yield are the criteria used in making investments. Working capital increased $72 million to $350 million due primarily to the increase in accounts receivable and inventories. Capital expenditures for fiscal 1998 totaled $97 million. The Company continues to reinvest into land, buildings and equipment in order to expand capacity for future growth. The Company anticipates that capital expenditures for fiscal 1999 will approximate $100 million. The Company's percentage of debt to total capitalization was 22% at May 31, 1998, versus 20% at May 31, 1997. During the year, the Company paid dividends of $18 million or $.18 per share. This dividend is an increase of 20% over that paid in fiscal 1997. INFLATION AND CHANGING PRICES Management believes inflation has not had a material impact on the Company's financial condition or a negative impact on operations. IMPACT OF YEAR 2000 The Company has completed an assessment of all of its software systems and has determined what changes, if any, need to be made so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The total cost of those changes is not expected to be material and will be expensed as incurred. The Company incurred the majority of its Year 2000 costs during fiscal 1998, and the remaining costs are expected to be expensed in fiscal 1999 when all changes are expected to be completed. The Company is in the process of contacting key suppliers to obtain certification of their systems Year 2000 compliance. SHAREHOLDER INFORMATION EXECUTIVE OFFICES 10-K REPORT Cintas Corporation A copy of the Form 10-K annual report filed with the 6800 Cintas Boulevard Securities and Exchange Commission for the year ended P.O. Box 625737 May 31, 1998, is available at no charge to shareholders. Cincinnati, Ohio Direct requests in writing for this report or other 45262-5737 information to: AUDITORS William C. Gale Vice President & Chief Financial Officer Ernst & Young LLP Cintas Corporation 1300 Chiquita Center 6800 Cintas Boulevard 250 East Fifth Street P.O. Box 625737 Cincinnati, Ohio 45202 Cincinnati, Ohio 45262-5737 (513) 459-1200 MARKET FOR REGISTRANT'S COMMON STOCK FINANCIAL INFORMATION Cintas Corporation Common Stock is For financial information visit traded on the NASDAQ National Market us on the internt at System. The symbol is CTAS. http://www.nasdaq.com or http://www.cintas-corp.com INFORMATION INTERNET ADDRESS REGISTRAR AND TRANSFER AGENT Visit us at our web site at http://www.cintas-corp.com The Fifth Third Bank SECURITY HOLDER INFORMATION Shareholder Services Mail Drop 1090F5-4129 At May 31, 1998, there were 38 Fountain Square approximately 1,900 Cincinnati, Ohio 45263 shareholders of record of the (513) 579-5320 Corporation's Common Stock. (800) 837-2755 The Company believes that this represents approximately 17,000 beneficial owners. The following table shows the high and low closing prices by quarter during the last two fiscal years. ANNUAL MEETING Closing prices have been stated to reflect a 2-for-1 stock split effective November 1997. October 21, 1998 The Fifth Third Bank 38 Fountain Square Fifth Floor Cincinnati, Ohio 45202 9:00 a.m. FISCAL 1998 FISCAL 1997 Quarter ended High Low Quarter ended High Low May 1998 52 7/8 42 3/4 May 1997 32 3/16 25 1/2 February 1998 46 36 3/8 February 1997 31 1/8 26 1/2 November 1997 40 3/8 34 11/16 November 1996 31 3/4 27 August 1997 35 7/16 30 3/4 August 1996 28 24 5/8 -----END PRIVACY-ENHANCED MESSAGE-----